Business Interruption Insurance Looms Large In Aftermath Of Storm
With thousands of businesses of all sizes dealing with business interruption and
contingent business interruption claims following Superstorm Sandy, there is likely to be issues between business policyholders and insurers over whether interruption losses are covered.This is due, in part, to the variety of problems and concerns the storm has created:Flooding
Physical damage
Power outages
Government orders and
Supply chain disruptions
Much of the coverage is tied to physical damage, which is damage covered under most policies.It all may depend on the policy and how losses were incurred. Business interruption insurance covers businesses for losses stemming from unavoidable interruptions in their daily operations as a result of physical damage, however, if damage was due to an uncovered peril like flood, for instance, such conditions may not be covered.
Many businesses may have coverage for loss resulting from evacuation by order of civil authority (triggered when authorities close off access to a damaged area). In this case damage to the insureds own property is not required to trigger coverage. An order of this type typically must result from property damage that is covered by their insurance policy.
Businesses not forced to close may still suffer loss of revenues
Many businesses not suffering major damage may themselves not be forced to close. They may still be able to tap contingent business interruption coverage (which is triggered when policyholders lose revenue after a property loss sidelines a major supplier or customer base).
Some business owners may not think about insurance unless their premises are damaged. Others still might fail to calculate their full range of loss. Many small businesses in particular may not even be aware of their business interruption coverage, let alone any contingent business interruption coverage they might have.
Most policies that exclude storm surge flood coverage afford limited coverage for flooding caused by sewer or drain back-up. Here again, causation can be an issue. A determination is required as to whether the loss resulted from initial flooding or perhaps debris in a drain.One key issue can be determining appropriate restoration periods (when a business is able to commence normal operations). Generally, coverage is only afforded for loss up to the point of restoration of normal business.
One might expect that direct property damage, power outages, blocked buildings and civil authority have all played a part in some large business interruption losses.Most commercial policies provide flood coverage; however, some policies contain specific language limiting or even excluding coverage in flood-susceptible areas. Which is why all the affected parties should review their existing policies immediately.
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